Reserving a Franchise in Mexico: Advance Payments and Refunds

Reserving a franchise does not necessarily mean buying it, but it can commit your money before you have completed your due diligence. In franchising, reservations can help structure the selection process; the risk arises when nobody explains what is actually being reserved. Before transferring any money, you need to understand the legal effect of the document, what the payment is for and the conditions for getting it back.

1. Identify what you are paying for and who you are paying

Do not accept an amount described simply as a ‘reservation fee’. Ask for a document that makes clear whether it is a temporary reservation, an advance towards the initial franchise fee or payment for a specific assessment service. Each arrangement requires different terms.

Ask what obligation the franchisor takes on in return. Will it stop offering a specific opportunity to others for a set period? Will it assess your application? Or will it simply receive it? If you pay while the other party remains entirely free to reject you, change the terms or continue marketing the same opportunity, the reservation offers limited value.

Before paying, check:

• Recipient: the legal entity’s registered name, Mexican tax registration number (RFC) and relationship with the entity that will grant the franchise.
• Authority: the identity and signing authority of the person entering into the agreement.
• Purpose: exactly what the amount covers and whether it includes applicable taxes.
• Treatment later on: whether it will be deducted in full from the initial franchise fee or treated as an additional charge.
• Duration: when the reservation starts and ends.

A personal bank account or an intermediary’s account does not, in itself, prove that anything is wrong, but it calls for sufficient explanation and supporting documents. A bank receipt proves that a transfer took place; it does not replace an agreement setting out its purpose.

2. Do not confuse the reservation with the statutory disclosure period

Mexico has specific franchise regulations. Article 245 of the Federal Law on the Protection of Industrial Property (LFPPI) requires anyone granting a franchise to provide information about the state of their business at least thirty days before entering into the franchise agreement. The required content is set out in the Regulations to the Industrial Property Law, which apply insofar as they do not conflict with the LFPPI.

Legally, this period relates to entering into the franchise agreement; it should not be presented as a blanket prohibition on receiving any payment beforehand. This is precisely why paying before completing your review requires particular caution.

Nor should you assume that a document labelled a ‘reservation’ falls outside these obligations. Its content and the commitments it creates matter more than its title. Ask a Mexican lawyer to determine whether you are signing a limited reservation agreement, a commitment to enter into a contract or, in terms of its legal effect, the franchise agreement itself.

Article 246 requires the franchise agreement to be in writing and to include, among other things, the policies, procedures and timeframes governing refunds and other agreed payments or consideration. This does not mean that every reservation payment is automatically refundable: you must agree clear terms from the first payment onwards.

3. Negotiate specific refund scenarios, not vague promises

‘We will refund you if we do not proceed’ leaves too many questions unanswered. Replace that statement with verifiable circumstances and specific consequences. At a minimum, discuss these scenarios:

• The franchisor rejects your application: a full refund, except for separate services expressly commissioned and actually provided.
• The documentation is not supplied within the agreed timeframe: the right to cancel the reservation and request a refund.
• The financial terms offered change: the option not to proceed without losing your reservation payment.
• A specified precondition is not met: a refund in accordance with the agreed procedure.
• You decide to withdraw without any breach by the other party: the amount recoverable and, where applicable, any deductions whose scope has been agreed in advance.

These are negotiating proposals, not automatic rights that apply in every case. For each scenario, specify who must give notice, how it must be sent, what evidence is needed and within how many days the money will be refunded.

If deductions are allowed, insist on specific categories of costs, supporting evidence and a cap. Avoid wording such as ‘administrative expenses determined by the franchisor’, which makes it difficult to predict how much you could lose.

4. Finalise the paperwork before transferring money

Keep the signed agreement, the dated financial offer, bank transfer instructions and relevant correspondence together in one folder. If a refund promise appears only in a sales conversation, ask for it to be incorporated into the signed document.

Also check that any subsequent contract acknowledges the advance payment and does not inadvertently remove refund terms that should remain in force. Do not authorise further charges simply because you have already made the first payment.

Practical conclusion: only make a reservation payment when you can explain, with documents to support you, what you are getting, what could prevent the purchase from going ahead and how you will recover your money in each agreed scenario. Sales pressure is no substitute for those answers.